Premiums and Calls - Rule 16: Closing of Policy Years

Rule 16 Closing of Policy Years

1 The Association may decide to close a Policy Year at such time as it deems expedient.

2 No further Last Instalments and Supplementary Calls, other than Overspill Calls, shall be levied in respect of a closed Policy Year.

Guidance

(A) The Association may decide to close a Policy Year… (Rule 16.1)A Policy Year runs from noon GMT on 20 February in any year to immediately prior to noon GMT on the 20 February in the following year.1 Each Policy Year is treated as a separate year of account, with the income for that year being applied to the claims, costs, expenses and other outgoings of that year. Policy Years remain open until the Association is satisfied that it has an accurate assessment of the level of claims etc., which are likely to be made against the Association for events arising in that Policy Year and that it has sufficient funds to meet such claims. A cornerstone of mutuality is that the Members entered for any given Policy Year are liable to pay their share of the claims, costs, expenses and outgoings of that year. Therefore, unless the Member’s entries have been terminated or have ceased and the Member has paid Release Calls pursuant to Rule 15, he remains liable for Last Instalments and Supplementary Calls in respect of a Policy Year in which he was insured until that year is closed.

(B) …such time as it deems expedient… (Rule 16.1)The time of closing of a Policy Year is entirely in the discretion of the Association and is decided by the Board of Directors.2 The decision will normally be taken when a reasonable estimate can be made of the total final liabilities, costs and other outgoings for that year.

It is not necessary for all claims to have been settled before a decision can be made to close a Policy Year. P&I insurance is a so-called ‘long tail’ business where certain claims may take years to resolve, particularly if they are the subject of litigation. But, as time goes by, the uncertainty concerning the overall outcome of the Policy Year is reduced. Therefore, approximately two and a half years after the end of a Policy Year, the Association will usually be in a position to estimate the final outgoings for that year with satisfactory accuracy, and on that basis, can decide whether or not it is necessary to levy a Supplementary Call, following which, the Policy Year can be closed. Consequently, it has been the recent practice of the Association to try to close a Policy Year three years after the end of the Policy Year.

(C) No further Last Instalments or Supplementary Calls, other than Overspill Calls… (Rule 16.2)The closing of a Policy Year relieves the Member from liability for payment of further Last Instalments or Supplementary Calls in relation to that year other than Calls which have already been levied before the Policy Year is closed. However, in rare instances3 if a Policy Year has been closed, but the premium paid for that Year has proved to be insufficient to cover all liabilities, costs and expenses relating to that year, the shortfall may be covered by reserves, i.e. surplus funds, accrued in other Policy Years and/or by Supplementary Calls levied on one or more other Policy Year(s) which are still open.4 Reserves set aside from the surplus generated in one Policy Year can be applied to claims occurring in another Year.5

Furthermore, the closing of a Policy Year does not relieve the Member from an obligation to pay Overspill Calls6 in relation to an Overspill Claim arising out of an event that occurred during a closed Policy Year. The rules that apply to the closing of a Policy Year for the purposes of Overspill Calls differ from those that apply to the closing of a Policy Year pursuant to Rule 16.7

1 See Rule 1. 2 See Articles 6.2.g of the By-Laws of Gard P. & I. (Bermuda) Ltd. and 9.2.f of the Statutes of Assuranceforeningen Gard -gjensidig-. However, it is the policy of parties to the Pooling Agreement to keep Policy Years open for at least two years after they have ended. 3 For example, if ‘long-tail’ claims prove to be significantly more expensive than originally thought. 4 See the Guidance to Rule 13. 5 See the Guidance to Rule 19. 6 See the Guidance to Rule 18. 7 See the Guidance to Rule 18 and Appendix VI, Paragraph 6 to the Rules for Ships.

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